Blank-check companies targeting the renewable-energy space could find it tough to get deals done
Special-purpose acquisition companies (SPACs) have recently enjoyed tremendous appeal among many investors south of the border, particularly as an easier-to-use vehicle for companies to break into the public space. But when it comes to the clean energy industry, that edge might not mean as much.
Among the many new SPAC launches that have come this year is a flourishing group that focuses on green energy, according to the Wall Street Journal. Citing a note from Norton Rose Fulbright’s Trevor Pinkerton, it said at least four filed since August are focused specifically on the renewable energy industry, and an even larger cohort is looking for companies that help promote energy transition.
The apparent objective is to change the current makeup of green energy companies from having many privately owned energy developers to having more public-market exposure. But the Journal said such a shift isn’t easy, at least if history is any indication.
“The last time renewable energy companies went public in droves was in the 2013-2015 period in the form of yieldcos,” it said, referring to companies that promised attractive dividends from operations of already-developed wind and solar farms. That trend fizzled when one solar developer, SunEdison, was driven to bankruptcy after it failed to live up to lofty growth promises with sister yieldco TerraForm Power. But a few companies from that time, including Clearway Energy, NextEra Energy Partners LP, and Brookfield Renewable Partners, are still publicly listed and have outperformed the S&P 500.
Another factor taking the wind out of SPACs’ sails, at least with respect to the renewable-energy space, is the abundance of interest and capital it attracts from the private space. Many investors, particularly pension funds, have shown an appetite for relatively low-yielding renewable energy investments in recent years as they ratcheted up their allocation toward alternative assets.
“Public markets, meanwhile, tend to favor rapid growth stories or splashy scale—not features of existing renewable developers or operators,” the Journal said, making note of green bonds’ relatively tame pricing advantage over plain-vanilla bonds as a sign that investors don’t automatically reward cleaner investments with much richer valuations.
Marathon Capital CEO Ted Brandt, whose firm advised battery-operated truck company Hyliion Inc. on its combination with Tortoise Acquisition Corp, told the Journal that likely clean energy-related targets for SPACs would include energy storage companies, renewable-related software, renewable natural gas, or companies that finance rooftop solar.
Some of that might sound like a modest stretch from the real carbon-reducing service one expects from green-energy investments – and it is. To raise their chances of closing deals, SPACs tend to cast wide nets with realistically broad mandates.
As an example, ArcLight Clean Transition Corp., which filed its prospectus in late September, has a clear focus on finding a renewable energy-generating target, but is also open to adjacent spaces such as energy storage, the distributed electrical grid, zero-emission transportation, carbon capture and even sustainable manufacturing.
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